Military power also factors in your military manufacturing and liquid credits to a smaller extent. If you really want to boost your military rating effectively, though, just make a few very expensive ships loaded with nothing but weapons, which is effectively what the AI has (minus the expensive part).

I also agree that the AI needs to put more weight into your tech and manufacturing capabilities than anything else because at the end of the day, if you have better techs and more manufacturing than everyone else, you can basically ramp it over to military manufacturing whenever you want and trounce everyone.

Whether or not you actually have a sizable standing fleet or not should not weigh as much. In most of my games, I am usually so focused on going tall that I neglect my military, but when the AI decides to declare war on me because I am "Ripe for Conquest," I ramp up the military lines and put them back in their place with superior techs and production. Of course, any faction that attacks me are usually among the first to lose because even though I do not bother to wipe them out, I cripple them enough for other factions to do it.